BofA resumes coverage on Paytm with 'underperform' rating

Reacting to the development the stock fell 0.79% to hit the day's low of Rs 409.05. This was also its second straight loss.

BofA sees high competition in the payments business for Paytm while estimating a weak set of numbers for the fintech company when it announces its fourth quarter earnings. It has attributed this to the Reserve Bank of India action.

Earnings recovery and re-rating could be 2- 3 quarters away, BofA said, expecting the estimates to bottom by Q1FY25 as the full impact of the three month ban on business would become visible.

The company will also have to spend more on marketing/branding to help strengthen its brand positioning in the market, BofA said.

The combination of lower revenue growth and margins would push back net income breakeven, the US brokerage said, expecting Paytm to achieve Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) breakeven in FY27 and net income break- even in FY28.

The stock has been at the receiving end of investors' ire following the January 31 Reserve Bank of India (RBI) diktat banning Paytm Payments Bank from accepting any deposits or credits to customer accounts.

The stock has seen its price erode by 37% in 2024, so far. On February 16, the stock hit its 52-week low of Rs 318.05 on the NSE.

The digital payments platform had narrowed its losses to Rs 220 crore for the quarter ended December 2023, compared with Rs 290 crore in the preceding September quarter and Rs 392 crore in the year-ago quarter.

Revenue from operations in the third quarter jumped 38% to Rs 2,850 crore as against Rs 2,062 crore in the corresponding quarter of the previous year.

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